Sometimes you need to flaunt! This man, SS had come to me about 15 years ago and wanted to plan for his retirement. He was being pressurized by his elder brother to relocate and buy 2-3 houses in south India so that he could live in one and rent out the other 2. Made sense to him, but he was not sure about his willingness to give up liquidity on 70% of his portfolio. His son was in USA and was unlikely to pay much attention to his Tau or his dad. Tau’s children were in Australia and Gurgaon. Again not much participation, and surely no great inputs.

I introduced him to the “Bucket Theory” – which was not very popular about 15 years ago. I split his portfolio in 4 parts –

Bucket 1: savings bank, fixed deposit (nothing cumulative even though he wanted it), income funds (had lesser choice then, so the range was increased a little), and company fixed deposits.

Bucket 2: company fixed deposits (did not lose any money, but I assumed that there would be some loss), gilt fund, balanced fund, some MIP – which he had even before I met him.

Bucket 3: Balanced fund, Corporate bond fund, some equity oriented balanced funds

Bucket 4: Direct equity, Equity funds.

The best thing was I kept Bucket 1 and Bucket 2 details in one website – and his son also had access to the same. Bucket 3 was kept in a different website and Bucket 4 was in a different site. He actually never say buckets 3 and 4 – well at the end of the year his CA would insist he wanted a valuation done, so it would be printed out.

As he had a pension of Rs. 22000 (sounded great in 2004!, and is still the same). He has not yet touched his PRINCIPAL For his 80C he still puts money in  ELSS, and I have converted all his fixed deposits to ultra short bond funds, and income funds – and doing a SWP.

His expenses are being met by his pension, interest, rent (has one spare house in Mumbai, and he stays in Chennai). Buckets no. 3 and 4 have been shuffled and re-shuffled, but not withdrawn. He has used the dividends for his expenses (we were planning to re-invest the dividends into the same shares from where it came). However his dividend income is now about Rs. 300,000 – and technically Rs. 1.5L goes into ELSS, so some of the dividend is getting re-invested. In the year 2007, LUCKILY (not skill) we sold some shares of Tata Power and Reliance. This went into fixed deposits (I wanted to enhance his buckets 1 and 2).

He and his wife are so relaxed that it is nice to see them completely at peace. Bucket no. 4 (and perhaps 3) are now very likely going to his grandchildren as a grant for their higher education – they can choose Ivy league of course !!

Looking at his expenses (simple life, very low medical expenses, wife is a cancer survivor – that bil was borne by his EX EMPLOYER), her non-reimbursed medical bill is about Rs. 100,000 per annum. He can of course afford it. I have invested Rs. 60L in Senior Citizens Saving account and LiC’s pension plan. This means his SWP is zero.

He gets Rs. 660,000 per annum rent for his Mumbai flat, Rs. 264,000 pension, Rs. 240,000 from SCSS, and Rs. 240,000 (annual pension from LiCs PM Yojana pension). Seriously a lot of money – and he does a SIP out of this and his bulging dividend income. He does an SIP of Rs. 60k per month!! and that goes into his Bucket no. 3 – a balanced advantage fund! Again growth option.

There were times when he felt he could have been in a more aggressive portfolio – more equity – but I restrained him. What we both did not expect (were lucky to get) was a senior executive who liked the flat so much that he gives a 10% year on year. I had underestimated the rent in a Mumbai suburb. We had some worries about his health – but it was his wife who got cancer.

He is now selling off his Real Estate (son being abroad and not wanting to come) both in Mumbai and in south india and is planning to buy an expensive stay in a senior citizen home. It is expected to cost him about Rs. 2 crores – approximately. This will of course come out of selling his mumbai property for Rs. 3 crores – and Rs. 50L goes into a tax saving bond yielding 5% .

What went right:

Very low expectations! – rent and equities we had lesser expectations.

Very lucky – no great medical expenses, and the cancer bill was picked by the company. If the company had not picked it, he would have spent about Rs. 2L – the balance would have been covered by the Medical Insurance cover.

Non aggressive portfolio – we allocated much lesser to equity than what we COULD have. I kept explaining to them “the need” and “the ability” to take equity exposure have to play together. This couple had no need. Their corpus was more than sufficient, and so was their mental strength.

Son did not ask for any money – in fact he paid for their vacations in Europe and USA (or this would have gone from the debt / equity corpus – about Rs. 10L.

Now planning to invest aggressively in Equities! He will go to a 30% debt and 70% equity -well in time for his 80th birthday.

Ha Risk profiling!!